CCMP, Irving Say They’re More Selective on Retail Takeovers

April 29 (Bloomberg) -- Buyout firms including CCMP Capital
Advisors say they have grown more selective on retail takeovers
after last year’s deal revival, seeking targets that can
withstand sagging confidence and rising commodity costs.

“You don’t see it in the stock prices yet, but there are a
lot of headwinds,” said Richard Zannino, managing partner of
New York-based CCMP, whose retail investments have included
outdoor-sports chain Cabela’s Inc. He spoke this week at a
private-equity discussion at Bloomberg headquarters in New York.

Prices for cotton have almost doubled in the past year and
costs for oil have gained more than 30 percent, prompting some
consumers to cut back on spending. Only the most disciplined
retailers are poised to thrive, leaving slimmer pickings for
buyout firms that took part in $25 billion of retail-related
deals last year, according to data compiled by Bloomberg.

This year, managers have announced more than 50 deals worth
about $4 billion, the data show. With last year’s enthusiasm
still fresh, some retailers may expect higher prices than buyout
firms are willing to offer, said Anthony Choe, a partner at
Brentwood Associates in Los Angeles.

“Sellers are going to be looking at 2010 saying ‘Hey, we
had a banner year, the future’s rosy,’” said Choe, whose firm’s
prior investments include clothing retailer Zumiez Inc. “We’re
going looking at stuff saying, ‘Yeah, but look at all the stuff
that’s come down the pike.’”

Commodities Impact

Most of the impact of rising commodity prices won’t appear
until the fourth quarter for many clothing sellers, since it
will take time for them to absorb the costs, said Les Berglass,
chairman of New York executive search firm Berglass +
Associates. Some retailers get as much as 40 percent of their
revenue from that quarter, when many consumers shop for the
holidays.

Still, companies with consistent growth will command a
premium, said Rick Perkal, senior managing director at Irving
Place Capital Management LP in New York, which has invested in
Vitamin Shoppe Inc. and apparel retailer New York & Co. The
average premium on private-equity deals for retailers is about
23 percent this year, compared with about 18 percent in 2010,
according to data compiled by Bloomberg.

Buyout firms are in a better position to take advantage of
appealing opportunities because publicly listed retailers have
had to focus on stabilizing their businesses, instead of on
acquisitions, Perkal said. Better borrowing terms also are
helping managers go head-to-head with corporate buyers, CCMP’s
Zannino said.

“Private equity is once again very competitive because of
where the debt markets are,” he said.

J. Crew Takeover

Among the largest and highest-profile deals recently is the
$3 billion takeover of J. Crew Group Inc. by TPG, the buyout
firm managed by David Bonderman and James Coulter. TPG, which
bought the retailer for the second time in 15 years, aims to
assist Chief Executive Officer Millard Drexler in expanding J.
Crew’s overseas operation and launching new brands.

Despite that and other deals, the market for retail
takeovers is unlikely to bounce back to the levels seen in 2006
and 2007, the executives said.

“People are being a lot more discerning on what they’re
willing to make bets on,” said Brentwood’s Choe.